Are Cryptocurrencies Going to Solve the Marijuana Industry’s Banking problem?

In the past few years, the rise of cryptocurrencies and the marijuana industry have made both controversial markets practically impossible to ignore. With the two most googled economic terms in Canada in 2017 being “marijuana stock” and “the price of bitcoin”, the widespread and continuously growing public interest is undeniable. Bitcoin particularly, has been on an epic rise, soaring more than 2000 percent in value within the 2017 year. Even British Columbia approved the first registered bitcoin fund manager in September 2017. In North America, marijuana sales totaled almost $7 billion in 2016, with a whopping 30% growth rate. To boot, North American sales are projected to top $20.2 billion by 2021. Now the question everyone wants to know: Will cryptocurrencies be a part of the solution for the Marijuana Industry’s banking issue? To comprehend the answer to this, you must first have a deeper understanding of both markets. Here’s what you need to know.

Cryptocurrencies:

What exactly are they anyway? Cryptocurrencies are electronic peer-to-peer currencies. According to CoinMarketCap.com, there are around 1,375 different virtual coins that anyone can buy. The idea of a peer-to-peer electronic currency has been around for decades, but it wasn’t truly successful until the birth of Bitcoin in 2008. Bitcoin, and other virtual currencies, have been designed to fix a large number of flaws surrounding the way(s) money is transacted from one party to another. Cryptocurrencies empower the users, eliminate middlemen (banks, PayPal, etc.), and make international transactions cheaper and easier. Buying cryptocurrencies are now as easy as downloading an app, like Coinbase.

The world is becoming more and more economically unsafe. This is why cryptocurrency is the biggest socioeconomic experiment the world has ever seen. It is inevitably going to change the world of finance. By relying on technology called blockchain, cryptocurrency transactions are so secure that experts consider them to be virtually un-hackable. Every cryptocurrency has its own blockchain, which involves a distributed network of computers securing it by performing complex, mathematical puzzles. For more information about the “puzzles”, research “Proof-of-Work”. Cryptocurrencies cannot be counterfeited and transactions cannot be reversed arbitrarily, which is vital for any functional, secure currency. Cryptocurrencies may help eliminate fraud and even identity theft because funds cannot be manipulated using one’s identity unless the key to those funds are stolen personally from you. Alex Tapscott, co-author of Blockchain Revolution, compares the advent of blockchain to the emerging internet in 1993.

Although the future of cryptocurrencies looks very bright, there are still several problems that need to be solved before cryptocurrencies like Bitcoin achieves mainstream adoption as a form of currency. One of the main issues many cryptographers are working on trying to solve is the speed of cryptocurrency transaction. Bitcoin for example, can only do between 3.3 and 7 transactions per second. Bitcoin will need to be able to process thousands of transactions per second to revolutionize the world. In addition, the price of Bitcoin will continue to fluctuate until mass adoption, which easily discourages people from using it as a currency. Most, if not all, challenges facing Bitcoin can be resolved. The biggest challenge will be educating the public on its use and value.

Marijuana Industry:

As scientific research has continuously proven the benefits of marijuana, and more prohibition laws across North America have dropped, the marijuana industry has been skyrocketing like no other. However, banking and dealing with this industry’s cash flow has been chaotic. Due to the plant still being Federally illegal in the United States, banks have turned away marijuana businesses left and right, no matter how badly they want their money. This has forced marijuana businesses to be cash-based, which is not just inconvenient but very dangerous. These cannabis-related businesses may not be able to access the financial services ecosystem, which includes bank accounts, online merchant services, card swipe orders, and the ability to access capital markets. There is a clear need for a solution to this cash-based industry.

By creating solutions and aiding where centralized institutions have failed, cryptocurrencies and blockchain technology are coming to the rescue. While Bitcoin has become widely popular, there are cryptocurrencies specifically for the cannabis market. PotCoin (POT) was the first developed cannabis cryptocurrency in 2014, and many others came soon after like CannabisCoin (CANN), DopeCoin (DOPE), HempCoin (THC), CannaCoin (CCN), and MarijuanaCoin (MAR). A question many are wondering is: If you’re just looking for a cash alternative, what’s the point of having a cannabis-specific cryptocurrency rather than an all-purpose cryptocurrency like Bitcoin? Sumit Mehta, publisher of cannabis industry report Mazakali Green Paper, says “I don’t fully understand why that matters.” Some blockchain developers have called marijuana-cryptocurrencies pointless, and that may explain why, even with some dispensaries currently accepting cryptocurrencies, business is still almost entirely done in cash. All cryptocurrencies currently have something in common that prevents industries from adopting them as a payment solution. It is that the price of all of these Cryptocurrencies are highly volatile. If a marijuana vendor accepts PotCoin and it’s value rises or falls 33% in one day, that can greatly affect the value of the company’s funds. Businesses prefer when the value of their funds are stable because they are trying to scale their company by satisfying projections & quotas. Cryptocurrencies can make that more like a rollercoaster than an escalator.

It’s not yet clear whether the marijuana industry and cryptocurrencies are a match. However, it is clear to see that blockchain is transforming the world in many aspects, and the marijuana industry is another area that can significantly benefit from this new technology (a secure trail of information- useful to both regulators and customers- that follows a plant from seed to sale). As of right now, “We have too many strict state and federal standards to meet, and right now, the cryptocurrencies don’t allow us to meet those high standards,” stated Zachary Zises, a dispensary owner in Chicago. Overall, digital currencies still have a long way to go and some cannabis industry specialists even believe that the banking issues may get resolved before the widespread adoption of cryptocurrency. The future belongs to those who prepare for it today, so educate yourself and don’t let the complexity of cryptocurrencies scare you away.